If you take the current market value of your home, and subtract from that what you owe on your mortgage, you get your home equity. If you ask a bank or credit union to lend you money based on this amount, you get a home equity loan. If you also have a good credit score and income, you can get the 125% Home Equity Loan Rate.
This loan does use your home for collateral, but, with it, you receive twenty-five percent more than what your house is currently worth, so the bank will also ask for your credit score to determine if they will give you the loan. Since the part above your home’s value is technically an unsecured loans, interest rates for this kind of loan are higher than other home equity loans.
125 Home Equity Loans straddle the fence between a secured and an unsecured loan, so it has the drawbacks of both: because it is partially unsecured, you need to have a good credit score to be considered for one, and the interest rates can be extremely high; because part of the loan is based on your home equity, they are holding your home collateral as part of the terms of the portion of the loan that is secured. Therefore, if you end up being unable to pay the loan, the lender can take your home in order to pay the loan off. Also, if you decide to sell your home, you will have to pay the loan off, and since it is more than the house is worth, part of it will have to be out of pocket rather than out of the sale.
With these drawbacks, you may wonder why anyone gets these kinds of loans. If one needs a huge lump of cash, this may be the best option, depending on how much your home is worth to begin with. This is usually only recommended if you are in a very bad place financially due to sudden expenses. On the other hand, if your credit score is good enough to get this kind of loan in the first place, there are probably other methods you could employ.
If you do choose this loan, look for the best 125% Home Equity Loan rates. Since a lot of companies who offer this kind of loan are online, be sure to make sure they are properly vetted. And once you have the loan, make sure you stick to the payment plan. If you miss payments, it could end up costing you a lot of money, besides your good credit score.
Kari discovered the magic of writing early, in elementary school, and has devoted every spare moment to it since. She writes fiction for her own amusement, and recently began writing articles for The Daily Tar Heel in Chapel Hill. Besides writing, she loves spending time with friends and family, reading, and drinking coffee. She defines herself based on her faith in God, her family roots, and her dream of one day publishing a best-selling novel.